Who will buy Hulu, the IPTV streaming service and why should we care? I’m not sure I do care, now that Lie to Me has been canceled, but in case you are an American who feels the future of series television is important, here’s what I think is going on.

The Wall $treet Journal says Apple is thinking of making a bid for Hulu and Seattlepi.com says Microsoft’s is no longer interested, which leaves Amazon, Apple, Google, Yahoo, and any unnamed parties. I can’t think of any unnamed parties, by the way, so I’m guessing one of these will walk with Hulu, which went into play a couple weeks ago following an unsolicited (and still unidentified) bid.

Of course the three big network owners of Hulu will guarantee five years of continued program access with the first two years exclusive. That’s because they have no money in Hulu and each stands to walk with $600+ million from the sale, but only if there is a sale. Without such an exclusivity period there will be no sale and no $600+ million. None of these networks can buy out the others for antitrust reasons so the “networks might balk” story is just to sell newspapers (or electrons). Hulu will be sold.

It will be interesting to see how much Hulu will cost the winner, though. The company appears to be managing the press brilliantly to generate buzz. Any of the interested parties could do the deal all in cash, no problem. But who will end up with it? Here’s my score sheet.

Apple will buy Hulu if the price is right, but how much higher than $2 Billion they will go? I suspect Apple may actually be just meddling here, trying to make it more expensive for the eventual winner.

Microsoft has already telegraphed that $2 billion is too high, but since they probably can’t afford to not be in this business that suggests they will put some smaller amount (still $1+ billion) into content deals.

For that matter, all the losers will be looking for content, so I’d say $4+ billion is up for grabs in Hollywood beyond Hulu. New cars all around!

Amazon just did a content deal with CBS (so did Netflix — remember them?) so buying Hulu would round out their content for Amazon Prime, likely bringing-in millions more customer accounts. But there, too, it depends on what is Amazon CEO Jeff Bezos’ price target. He and Jobs are very similar in that they will have a maximum in mind and probably won’t go higher.

My gut suggests that the auction will finally come down to Google and Yahoo, if Google can get this past the feds despite its dominant position with YouTube. Yahoo CEO Carol Bartz probably sees this as her best chance to avoid being fired so I think she’ll bid high. I suspect, too, that Yahoo’s unsolicited interest was what started Hulu in play in the first place, though that’s just a guess on my part.

Buying Hulu could also be Bartz’ undoing, though, because she could blow half her cash or more (I suspect Google will go to $3 billion and Yahoo will beat that) and then find herself in a position where she can’t make a profit on her purchase, especially since she’ll have to do her own CBS deal at that point and CBS CEO Les Moonves won’t make that cheap. Amazon reportedly paid $100+ million to CBS, but Moonves will try to hold out for closer to the $600+ million he would have received had CBS been a Hulu owner, seeing anything less as charity.

The fascinating scenario here, of course, is that Yahoo way overpays, damaging itself fatally in the process and ends up being acquired by one of the others, probably Microsoft.

No wonder Ballmer pulled out of the bidding, he’s playing the long game.

44 Comments

Nigel
July 22, 2011 at 12:10 pm

Hi Bob

Being a Brit I don’t always see the “over-the-pond-repurcusions” in all their clarity. However I’d like to add that I do understand the numbers – big-style! Over here we are ‘on average’ capped in our BB usage and this generally means 2GB unless we stump-up more cash. It’s all academic until the Internet is unrestrained for everyone. This is the story I want – desperately – to read. Then I know we can ALL participate.

Being an early adopter in the UK I do – actually and happily – have an uncapped service. BUT I simply can’t sympathise with ANYONE until the playing-field is level.

Keep up the good work tho’ – I’m a devoted fan! 😀

Ryan
July 22, 2011 at 12:10 pm

Why not Netflix?

Mr Windows
July 22, 2011 at 12:16 pm

Yep, you can guarantee that if Yahoo! bets big and wins, their stock value will dwindle down in short order, enough for Microsoft or somebody else to get Hulu AND Yahoo! at roughly the same price…

Skeptical Fanboy
July 22, 2011 at 12:36 pm

I take it the price is already too rich for Netflix, or the anti-trust repercussions too daunting, because why otherwise would Netflix not want to take a stab at it? If they could scoop up Hulu, they’d have a dominant position of power with which to negotiate with the content providers. I’m sure that scares the content providers (and well it should), but if the FCC allowed CableTown (excuse me, Comcast) to snaffle up NBC/Universal, and they’ll likely allow AT&T to borg T-Mobile, why shouldn’t Netflix be allowed to ingest Hulu?

It’s only a matter of time until those exclusives run out, the content is pulled (as they see the new Hulu owner as a competitor) and they revert to a more annoying, crappier system. Our just charge for everything.

I see only Google willing to lose the money to make this last a long time (and make GoogleTV take off,) but I don’t know of they could get away with it, like you said.

Fingers crossed for a currently unknown and completely surprising third party to show up. Maybe Mark Cuban is bored and can get som e investors? Nah.

TheOtherGeoff
July 22, 2011 at 1:21 pm

ThePirateBay keeps looking like a reasonable alternative for ‘broadcast’ content on the Internet.

Since people don’t like ads, then Apple or netflix is the ‘right home’ for Hulu
Anything else will end up being a pain for people, and they will end up pirating their shows.

If I’m any example…. I pay for 1 click purchases, and will scan the torrents for anything that requires either Flash, Commercials, or entering a credit card at point of purchase.

Much like RXC’s last missive, I see this as ‘old media’ (like facebook is old ‘internet adware’), and eventually, this business model (adware laced content) will die.

The Fact that Hulu is Flash based makes it’s death all the more satisfying.

You mentioned The Pirate Bay; it BLOWS MY MIND that an industry that not only made its bones, but found its stride, on giving away content, is losing it’s footting as publishing content becomes easier and easier.

I agree with the idea of Apple meddling to raise the price(as well as the other points made in the post). They can bid enough to make sure Hulu doesn’t go to cheap and if by chance their bid wins it will be a price they can recover from the company’s assets. Speaking of assets, I believe Hulu owns some content but I haven’t seen any assessment of how big their library is or its value.

Another question I haven’t seen answered yet is how Jobs’ Disney investment might affect Apple’s participation in a Hulu auction. Is there really no conflict of interest or unfair advantage created by this?

Seen Urn
July 22, 2011 at 2:42 pm

Remember all that UHF spectrum that was bought up years ago?

Steve
July 22, 2011 at 4:22 pm

I just can’t see Apple buying Hulu because they haven’t been interested in a browser based platform neutral (or even worse Flash based) delivery system – they WANT the content delivered via iTunes. So I agree that Apple would only be bidding it up, or if they got lucky enough to scoop it up for cheap to kill it.

Glenn M
July 30, 2011 at 5:37 am

The one good reason I can see for Apple wanting Hulu is that it could make the Apple TV the product that it could be. Spring $99 for an Apple TV, and it comes with everything on Hulu with a nice interface, for free for a year (including Hulu Plus for all your IOS devices, of course). Combine it with a Netflix streaming account, and you have a real cable TV replacement technology. After the first year, charge a subscription fee of some sort so that the content producers keep getting paid to make more. Buy a new Apple TV box in a couple of years, and the subscription fee for a year is built in to the cost. A bit like how Apple charges for iCloud.

Still, I don’t see Apple really wanting this for some reason. Apple tolerates big content producers, and I don’t think they will want to marry them like they will have to for a service that doesn’t require Apple hardware to use.

[…] Bob Cringely has a engaging thought that Apple, with a hazard of a money hoard, is simply feinting, driving a cost adult for a contingent winner. What do we […]

Trex
July 23, 2011 at 5:57 am

The fate of piss-ant companies like Hulu is just a sideshow. Media giants are jockeying to put us all on the meter with pay-for-play content delivery. IPv6 will end anonymity, and each device will be tracked and the owner/user billed for every byte of content they consume. Watch as the DMCA grows some real teeth and Big Media’s friends in the federal government make sure that the tributes and new taxes are paid.

Steve
July 23, 2011 at 4:34 pm

Sigh. You are right, of course. Freedom is not the natural human condition.

Grunchy
July 25, 2011 at 8:52 am

[quote]Media giants are jockeying to put us all on the meter with pay-for-play content delivery.[/quote]

I don’t think so, at least that hasn’t been the strategy before. It was always about packaging lots & lots of channels you won’t watch with one channel you will watch, and making you pay for that entire group.

If I only have to pay for what I watch, that’s a major win for me as a consumer, because I largely don’t watch much tv. If I only have to pay for the few bytes I actually do watch, my bill will go down drastically! Especially for summer holidays when we’re not even in the house – that month my water meter will read 0, same as electrical, and even the cable meter. Sweet!

Obviously the studios cannot pay mega buck salaries for the stars and executives if we all don’t overpay for services we don’t even consume.

Ronc
July 25, 2011 at 1:20 pm

I agree that the media giants are not trying to move exclusively to pay-per-view. But for most us, the current mix of flat rate plus pay-for-premium content probably helps to lower our bills. The advertisers pay because they are sure the programs they sponsor will be easily accessible to all cable subscribers. They are the ones doing the subsidizing. Fewer advertisers or lower advertising rates means more of the cost will be borne by subscribers.

One other reason apple will probably not bid is that this business model is not scalable around the world. Apple will not invest in something that cannot be extended around the world. That is why ey sell and rent video content because that is something most all content providers are willing to do. Streaming and subscriptions and ad supported content are all controversial to varying degrees around the world. Spending $2B on a parochial US only business (that also excludes a provider) would not fit in wi Apple’s ambitions.

Me_UNIX
July 23, 2011 at 12:50 pm

Ohooohh…
in case you are an American who feels the future of series television is important
Hey Bob ! you really forced me to my identity crisis (not that it didn’t exists before reading your blog, of course).
Am I an American ? If I was born (to the best of my knowledge) in a banana republic, in within the continent: am I ? Or is it that you just meant “born in America” if British descendant born in US ? Now, what is to be an American ? Is it to better ? Is it to be worst ? Than ? What ? Who ? Ok. What kind of American may possibly feel a TV series is important ? Interesting.
Keep writing please.
Thanks.
ACG

Apple is clearly in it to make the bid higher. The acquisition doesn’t make much sense for them, and they’ve certainly showed with their cloud music that they don’t want to move to “all you can eat” subscription plans.

They know Google really wants it so they will try to make the price higher to hurt them.

I frankly don’t think any of the companies you discuss will end up buying Hulu, with the possible exception of Yahoo, and then for the wrong reasons (i.e. not knowing what else to do). The best strategic fit would be DirecTV, which needs an online video play but lacks a broadband network of its own on which to build it. Hulu would give it position on broadband networks by virtue of the rights that come with it while the Hulu Plus app would give DTV a valuable presence on Internet-enabled consumer electronics devices, including connected TVs that are not currently connected to DirecTV.

These companies already have video content available for sale or rental. Hulu already charges for content through Hulu Plus. If you notice, new episodes of popular shows are only available through Hulu Plus.

If you have to pay a flat fee to watch a TV show, Netflix gains nothing more than a new URL to offer what they already offer.

Amazon & Apple already have the investment in IT to offer streaming movies and TV show. The only thing they would need is the ability to add commercials.

It would seem to me a player like Yahoo or Barnes & Noble is a more likely candidate. Barnes & Noble needs something like this to grow out of retail book stores and into streaming content to the Nook. Plus, the ability to turn every Barnes & Noble into a video store would be off-the-subject, but a great way to breath life into their bookstore chain.

The road leading up to the bridge is free flowing also and the queue for the bridge is not getting any longer. What’s going on here? Well, it’s called a stationary wave caused by momentary extreme congestion.

It would seem to me a player like Yahoo or Barnes & Noble is a more likely candidate. Barnes & Noble needs something like this to grow out of retail book stores and into streaming content to the Nook. Plus, the ability to turn every Barnes & Noble into a video store would be off-the-subject, but a great way to breath life into their bookstore chain.

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